Eureka Correspondence

Sentinel Property, overseas ETFs, clarifying super contributions, property outpacing shares, and more.

Investing with Sentinel

I don't see any reference in your recent videos and articles about Sentinel Property Group to the fact that only sophisticated wholesale investors are eligible to invest. I wasted time excitedly investigating further only to discover that as I didn’t have a lazy $10 million lying about in my SMSF I couldn't invest at all. Not happy, Jan.

DK

Rosemary Steinfort’s response: Sentinel Property Group has a minimum investment amount of $100,000, which does suggest it is for a sophisticated investor, but not necessarily wholesale, as many of their unit holders are SMSFs (about 64% of their investors). A compliance form must be filled out by a financial adviser or accountant to satisfy the Australian Securities and Investments Commission (ASIC) requirement for a sophisticated investor. The corporations regulations prescribe the asset and income criteria which must be met for a sophisticated investor as either a gross income of $250,000-plus a year in each of the previous two years, or net assets of at least $2.5 million.

Choosing overseas ETFs

Can we have an article on what the best exchange-traded funds are in offshore regions such as the US, Europe, the UK, Japan, China and emerging markets? This will allow us to invest in offshore markets and in time profit from their increase and the Australian dollar decrease which should provide a pretty nice future return. I think, given the high Australian dollar, it is imperative we diversify outside Australia.

Name withheld

Editor’s response: Thanks for your interest regarding an article on the best ETFs for offshore investments. We will endeavour to address this in more detail in the coming weeks. But, for now, here are a few details: there are about 83 equity ETFs listed on the ASX. Of them, six cover global markets and about another 61 are cross-listed ETFs which cover global markets. The cross-listed ETFs are listed in another country where they are incorporated (usually the US) and trade on the ASX in Australian dollars (and pay Australian-dollar dividends). There are also 10 fixed interest ETFs and one is cross-listed.

Clarifying super contributions

In the article How to prepare for 2014-15, Robert Gottliebsen says you can invest $35,000 tax deductible in your superannuation fund if you are aged over 49 in 2014-15, which means you can earn $214,000 and keep your taxable income below $180,000.

I was of the understanding that the employer's contribution to the employee's super scheme is part of the $35,000. That would mean that in many cases and certainly PAYE government employees (9% employer contribution plus 5% employee contribution) hit the threshold well before $214,000. Could you please advise if I am correct?

Name withheld

Robert Gottliebsen’s response: Thanks for your question. If you are on a salary your employer in 2014-15 is required to contribute 9.5% to your fund up to a cap of $18,783 a year (salary $197,720). To go to the tax deductible caps I spoke of in an employment arrangement you must  ask your employer to reduce your salary. That reduced salary goes into superannuation and is taxed at 15% on the way in (but of course you do not pay the top marginal rate). It’s a two-step operation. But be careful when you salary sacrifice if your salary is low and make sure that you don't upset other entitlements—holiday pay, etc. Also, watch that you do not exceed your cap, which depends on age.

Property outpacing shares

I wish to comment on Scott Francis’s article property outpacing shares over the past 20 years.

This is perhaps true when looking at index performances, but I am not interested in the index. Just as there are many different types of houses for sale, there are many different shares. I can vouch for the fact that my Commonwealth Bank (CBA) and CSL (CSL) shares have far outperformed the growth in price of my property that I bought in 1996.

The performance of residential property also ignores the enormous sums of money required to be borrowed (for most people ) with the risks involved therein, whereas one can purchase shares with very little. It also ignores the interest payments you need to pay to the banks in mortgages, real estate agent fees, land taxes and other hefty ongoing maintenance and repair costs, which do not exist in my share portfolio.

Lastly, one shouldn't forget the enormous benefit of franking credits from shares, unlike property.

CC

Beating the fund managers

Scott Francis’s article on managed funds was excellent. It would be interesting to see, if once their fees were added back to the portfolio, whether more than 50% of them outperformed the market. I wouldn't be surprised if their performance was no better or worse than anyone picking a representative and random selection of blue chips. This means that if you had $2 million in super you would be paying a $30,000 fee (at 1.5%) to what seems to be a bell curve industry. That works out at about $4,000 per annum.

An accountant, half a molecule of common sense and a Eureka Report subscription is all anyone needs to run a super fund. No wonder there is so much fear of the SMSFs: any super fund larger than $250,000 is better off self-managed.

MU

Finding US economic data

I recently joined Eureka and find the information provided to be great . I'm on this learning curve to understand all things financial , as I'm about to embark in investing my hard earned dollars. I'm building my portfolio strategy, which will include investing in equities.

My question is in reference to Adam Carr's article Pointers to a US market correction. He lists four key indicators: jobs growth, the unemployment rate , US housing starts and the ISM Index. Obviously these get published, most likely monthly at certain dates, excluding the ISM manufacturing Index, which would be daily from the Ney York Stock Exchange. Where does one go online to get this information and read the latest results?

Anthony Beaumont

Editor’s response: Thanks for your question. You can find data on jobs growth in the US and their unemployment rate from the Bureau of Labor Statistics. Housing starts in the US is reported by the US Census Bureau. For the ISM manufacturing index, check this link.

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